Worldwide diversity in funded pension plans

There is a huge diversity in pension system design across the globe, reflecting historical, cultural and institutional diversity. There is much to be learned by each of the different systems, so in order to compare the benefits of various systems, two authors from APG in the Netherlands postulate a new classification of four role models of funded pension plans.

They thus provide an in-depth comparison of funded pension savings plans around the world.

The research by Eduard Ponds and Manuel Garcia-Huitron, funded by NETSPAR, proposes new classifications based on choice architecture and type of regulation, and the authors illustrate the features of each role model with 12 representative pension plan case studies from 11 countries.

“Valuable lessons can be learned from international best practices, but we avoid making any normative comparison,” the authors say.

The authors come up with four models: the centralised choice model, the delegated choice model, the regulated choice model, and the induced choice model.

They provide examples of various plans from different parts of the world and a matrix of positive and negative attributes for each category.

While they acknowledge “the search for an optimal pension system may be a futile exercise as each model has strong institutional and historical roots that are deeply wired into cultural attitudes towards freedom of choice, flexibility and the role of (and trust in) the state and the private sector,” the authors believe there are valuable lessons to be learned from the international experience.